What the Sarko Victory Really Means

It is always entertaining to watch politicians duke it out in the public arena – no matter what language it’s in. This week, Bill Bonner examines the recent French presidential election, and gives some insight into what the United States has to look forward to in 2008.

Horns began honking about 8PM on Sunday night.

“It’s probably the election…Sarkozy must have won,” said a woman’s voice from the kitchen. The woman was convinced that the election marked a critical turning point for France.

Since we live in one of the most bourgeois quartiers, the 16th, a Ségolène victory would have been greeted by gloom and despair. (A friend announced that he would leave the country if Ségolène won.) The noise could only mean one thing: she had lost. The Hungarian had won. And soon, if Ségolène’s prediction – or curse – were accurate, cars would be aflame all over Paris.

Cars were lit up on that night; but dozens of cars are set alight every night in France. English yobs get drunk and throw up. French voyous set cars on fire. Like so many other things that define life on both sides of the Channel, it is just a matter of translation.

Everyone seems to have taken this election seriously. Here, we make an effort to render unto this Frog Caesar and his Anglo-Saxon kibitzers the disrespect they all deserve. Not that there is anything wrong with Sarkozy. He is a short, energetic Napoleonic figure, it is true. But in a crowd of French politicians, he stands as tall as anyone since de Gaulle. Jacques Lang is a hopeless clown. Villepin is a stuffed-shirt fool. Chirac is a cunning old wolf. Ségolène is a pretty airhead.

Sarkozy hates Chirac and Villepin; the two tried to frame him and get him in trouble with his wife. Chirac hates Sarkozy because he sided with his rival, Balladur, and had an affair with Chirac’s daughter. Everyone hates Ségolène, including the father of her four children.

But put a group of politicians together, anywhere in the world, and they will always smell like over-ripe cheese. Still, it is fun saying wicked things about Frenchmen to a group of mostly Anglo-Saxon readers. Americans and Brits have a petty disregard for the French, which expresses itself in asinine ways. They imagine the French are devious and snobbish…which is true, but irrelevant.

At the launch of the war in Iraq, for example, Chirac helpfully warned that the war would be a mess; he said he wanted nothing to do with it. Instead of thanking him, U.S. Congressman Bob Ney removed French toast and French Fries from the Capitol Hill cafeteria. Ney was later convicted of fraud and is now serving a 30-month sentence at a correctional facility in Morgantown, West Virginia.

And as to France’s economy, is there a single economist in England or America who doesn’t think it is hopeless? France is in decline, they all believe. Its economy is in perpetual crisis…its leaders are incompetent, spineless collectivists…and if something is not done soon, the whole place will collapse in a heap. And what do they think should be done? The French need to act more like Anglo-Saxons, of course!

What is amazing about this vanity is that most of the French think it is true too. That’s why Sarko won the election. At every campaign stop, the “angry little man in a dark suit,” as the Independent tagged him, got up and told listeners what a disaster the Socialists had made of the country. He identified the economy as a key irritation, repeatedly complaining that the French aren’t allowed to work long enough or hard enough to compete with the rest of the world.

Since the Socialists imposed the 35-hour workweek, he noted, the average Frenchman labors only 600 hours per year. In England and America, the tillers of the soil, the weavers at their looms, and the City-bound money-shufflers put in a full 30% more hours. Our personal experience, after living and working among French and English for many years, is that these statistics are misleading. Both groups cheat. The Anglo-Saxons pretend to work hard; the French pretend not to.

Still, you have to admire the chutzpah of Sarko for pointing out that his country is a mess; his own party has been running the place for the last 12 years, with Sarkozy himself as one of Jacques Chirac’s principle lieutenants.

Let us look at more figures. Think France is unproductive? It has the highest productivity figures in Europe, according to the Financial Times – nearly 120% of the U.K. level, and going up. Think France is poor? Well, the French may work only 75% as hard as Englishmen, but they make 90% of Britain’s GDP per capita – about the same as Germany and Italy. And the British figures are greatly inflated by the extraordinarily high earnings of a very small group of people who work in the financial industry. Whether the average person in Britain lives as well as the average Frenchman, who knows? But when the Daily Mail posed the question, an astonishing one out of every four Englishmen said he’d like to immigrate to France!

Everyone wants to be as happy as Gott im Frankenreich, as the Germans used to say, before invading. Despite all the auto-critiques of France, it’s still a very nice place to live. Partly because the typical Frenchmen, while he is as distracted by politics as much as anyone, has the good sense to focus his keenest attention on his soup…his lilacs…and his cheese. And the typical French politician is shrewd enough not to take his politics too seriously, either.

Indeed, there are only a few things the French take seriously.

Remember, for instance, Felix Faure, who died suddenly – in office – in 1899. The priest arriving on the scene asked if the old man had still had his ‘consciousness’ about him when he died (‘connaissance’, in French is a word that can be translated as either ‘knowledge’ or ‘acquaintance’). “Not so,” replied the policeman, “she left by the side door.”

Bill Bonner
The Daily Reckoning
May 11, 2007

Editor’s Note: Don’t forget – you can hear Bill (along with all of your favorite DR editors) speak at this year’s Agora Financial Investment Symposium in Vancouver, British Columbia. This year’s theme is “Rim of Fire: Crisis & Opportunity in the New Asian Era” – and it’s your first look at investment opportunities, global market concerns, and the best investment bets across the globe.

Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount – just click on the link below:

You don’t hear us complaining about it…but others surely will. One of the big struggles in the world of politics has always been between those who have and those who have not…between equality of opportunity and equality of results…between the upper classes and the lower ones…between the patricians and the plebes…the elites and the yahoos. The elites always come up with a theory – divine right, social contract, communism, democratic capitalism – which keeps the masses quiet for a while. But then, times get tough and the mob goes sour. The lumps start asking for a New Deal or a Revolution. At that point, they usually don’t want just money…they want blood.

Of course, we’re still a long way from there.

Still, you have to wonder how long the proles will continue to believe in a system that gives them less and less, relatively. If modern American capitalism is the gold mine most people think it is, a lot of people are getting nothing but the shaft.

First, we note that the U.S. trade deficit rose 10% in March to its highest level since September. At nearly $64 billion, Americans are still spending $2 billion PER DAY more than they make – on a global basis. They make up the shortfall, as we all know, with debt. Corporate debt. Government debt. And private debt.

But one group that is relatively debt free is the wealthy. They don’t need to borrow – they’re getting rich and lovin’ it.

Floyd Norris, in the International Herald Tribune, reports that NY bars and restaurants can barely keep up with demand for champagne at $350 a bottle…and one brand sells at $1,600. It’s not unusual, apparently, for a single table to spend $12,000 on liquor in an evening.

He notes that one of the achievements of American capitalism of which we were once most proud, was the fact that it gave the ordinary working stiff a bigger share of business earnings by, as Peter Drucker put it 30 years ago, “the steady narrowing of the income gap between the ‘boss man’ and the ‘working man.'”

As productivity improved, working-class wages went up, while there was no particular need to increase executive salaries.

But that was a long time ago. Now, productivity rises – and the boss men get the extra dough.

This from the BBC:

“After growing at more than 3% a year in 2004 and 2005, the pace picked up to a blistering 5.6% annual rate in the first quarter of this year – although the pace has since then slipped back to 2.9%.

“So far, though, little of that growth has translated into the hands of the average worker, according to new research from the Economic Policy Institute (EPI).

“For real household incomes, the median point – the level at which half of households earn more and half less – has actually fallen over the past five years.

“During the five years from 2000 to 2005, the U.S. economy grew in size from $9.8 trillion to $11.2 trillion, an increase in real terms of 14%.

“Productivity – the measure of the output of the economy per worker employed – grew even more strongly, by 16.6%.

“But over the same period, the median family’s income slid by 2.9%, in contrast to the 11.3% gain registered in the second half of the 1990s.

“The wages of households of African or Hispanic origin fell even faster.

“And new entrants to the labour market fared particularly badly.

“Average hourly real wages for both college and high school graduates actually fell between 2000 and 2005, and fewer of the jobs they found carried benefits such as health care or company pensions.”

The BBC then helpfully asks the obvious question: If the economy grew…and most people didn’t get any more money…where did the money go? The answer:

“The share allotted to corporate profits increased sharply, from 17.7% in 2000 to 20.9% in 2005, while the share going to wages has reached a record low.

“The incomes of the top 20% have grown much faster than earnings of those at the middle or bottom of the income distribution. The income[s] of the top 1% and top 0.1% have grown particularly rapidly.

“From 1992 to 2005, the pay of chief executive officers of major companies rose by 186%.

“The equivalent figure for median hourly wages was 7.2%, leaving the ratio of CEOs’ pay to that of the average worker at 262.

In the 1960s, the comparable figure was 24.”

In other words, the ratio of the top earners to the bottom earners has risen 1000% since the Johnson administration.

Of course, it’s not polite to ask what others make. People with manners will ignore the disparity entirely. But that still leaves nearly 300 million American ready to make an issue of it.

More news:

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Addison Wiggin, back in Charm City…

“The U.S. trade deficit with China has become worrisome… So worrisome, the Chinese government is forcing businesses to come to the U.S. on ‘buying missions.’

“In preparation for upcoming trade talks, China is on a mission to spend money in the U.S. on… well… anything expensive. Think they bought mustangs or the Trump Tower? Not likely. The Chinese kicked off the campaign on Wednesday by buying $4.3 billion in U.S. technology… which they will take back to China to build stuff with.

“The Commerce Department reports that the trade gap has widened by another 10% in March to $63.9 billion – about $4 billion over what noodlers at the Commerce Dept. had estimated. Wait a second. Shouldn’t we be sending our boys over their on SELLING missions? Oh, yeah… we don’t make anything they want to buy. Hmmn…”

For the rest of this story, see today’s issue of The 5 Min. Forecast

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And more views:

*** Bernanke sings a familiar tune…

Despite the fact that economic growth is at its weakest level in four years, Helicopter Ben is sticking to inflation as his biggest concern, not recession. And at a business seminar today, our old friend Alan Greenspan backed up his successor, saying that the odds are two to one in favor of the United States avoiding the dreaded ‘r’ word.

These comments, coupled with data that suggests inflation is moderating, helped reignite a rally on Wall Street that took a major hit on Thursday after weaker than expected retail data was released.

The AP reports: “In early afternoon trading, the Dow Jones industrial average rose 89.80, or 0.68 percent, to 13,304.93, gaining back part of the nearly 150 point loss it suffered Thursday. It has hit 21 record closes since the start of the year and 43 since the beginning of October, its latest coming Wednesday.”

This kind of froth in the Dow causes investors wonder if the market is overvalued – and if their portfolio is at risk.

For answers, we turn to Steve Sarnoff. Yes, we hear you loud and clear, dear reader. Our bragging about Steve’s plays after they’ve banked gains on some fast-moving market action has gotten on your last nerve.

For the last 18 years, however, risk management has been Steve’s area of expertise.

Since 1987, he’s recommended option strategies as a way to hedge your portfolio and minimize risk. His simple strategy allows you to make money if the market is going up or down. His advice could prove quite useful as the Dow and S&P approach their market highs this week.

Options can be a very practical risk management tool – and if you want to give Steve’s trading service a try, now’s the time. You can get Options Hotline, the second oldest options service in country, for half of the regular price – and risk free. If you aren’t happy with Options Hotline after six months, we will refund your money…no questions asked.

*** Looks like hurricane season came a little early…the National Hurricane Center usually starts naming storms around mid-June – but not this year.

The first officially named storm, Andrea, arrived yesterday, almost a month before the official start of hurricane season. CBS News reported,

“Subtropical Storm Andrea had top sustained winds around 45 mph Wednesday afternoon and didn’t appear to be much of a threat, the National Hurricane Center in Miami said. Still, a tropical storm watch was issued for parts of Georgia and Florida, meaning tropical storm conditions are possible within 36 hours.

“‘We’re not looking at this system strengthening significantly,’ said Richard Pasch, a senior hurricane specialist at the center.

“The storm’s wind, however, has been blowing smoke from wildfires across Georgia and Florida.”

Our own Kevin Kerr told CNBC’s Becky Quick that everything from the ethanol initiative to bad weather is taking a toll on the already vulnerable commodities markets.

“This is a weather and demand market now, both in our favor, in my opinion,” says Kevin. “I am also looking at possibly adding a corn spread or another grain to our portfolio, too. Maybe wheat, and on a pullback like this, it may be a good time. Corn is already creeping higher again, though, so we will only move on something that looks like a good bargain. Stay tuned.”

You can catch Kevin on with CNBC’s morning crew again on this coming Monday, at 7:30 AM (EST).

*** Floyd Norris points out that $350 champagne has replaced steep tax rates as a way of redistributing income. During the Eisenhower years, for example, the top marginal rate on incomes over $100,000 – about $3 million in today’s Fed-cheapened currency – was 91%. Outrageous executive salaries were still decades ahead. And then, it was considered natural and normal that capital gains should be taxed at a higher rate than ‘earned’ income.

So, the levelers can stop worrying. As soon as people get their hands on a little money, whole industries arise to take it away from them. Yesterday, for example, I learned that the watch business is exploding. Now, you find watch boutiques in Moscow, St. Petersburg, and all over Asia and the Near East. Expensive watches are selling so fast that manufacturers can’t keep up.

Super deluxe houses, too, seem to be defying the general trend. All over the world, people are building palaces for the rich. We picked up a copy of a magazine – International HOMES Investor. Sounds like a contradiction, to us. A place is either a home (where you live)…or it’s an investment – never both.

But opening up the magazine and we find luxury properties everywhere – Portugal, Turkey, Greece, Costa Rica, Florida…even Las Vegas…and all with the sotto voce assurance that not only is this going to be a glamorous new lifestyle for the buyer, the properties are going to go up forever and aye! You can get a ‘Slice of Heaven on Earth’ in Bonita Springs, FL, according to one ad. Or own a ‘Charming Villa…sea…golf…in Spain.” How about Tenerife? The Cayman Islands? Egypt!?

At first, we thought these were houses that rich people bought when they wanted to part with their money. Instead, we find they are places ordinary people buy when they take leave of their senses.

Here’s a ‘Case Study,’ offered by the magazine. “Paul Percival, a self-employed upholsterer in South Wales, has recently invested in a two-bedroom cabana costing $750,000 at Buccament Bay Resort in St. Vincent. He says: ‘Investing into the profitable overseas property markets seems like the best possible way to make the most of my capital at this time.'”

In addition, we find that he’s invested in two properties in the Dominican Republic…and that “these investments [sic] have given me great faith and peace of mind…”

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About Bill Bonner:

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America’s most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.